7. If the point representing a stock's return and risk is above the security market, then_ B. the stock is underpriced A. the stock is overpriced C. the stock is fairly priced D. the stock is overpriced if the risk is high, but is underpriced if the risk is low

7. If the point representing a stock's return and risk is above the security market, then_ B. the stock is underpriced A. the stock is overpriced C. the stock is fairly priced D. the stock is overpriced if the risk is high, but is underpriced if the risk is low

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Similar questions

You, in analyzing a stock, find that its expected return exceeds its required return. This suggests that you think a. the stock should be sold. b. the stock is a good buy. c. management is probably not trying to maximize the price per share. d. dividends are not likely to be declared. e. the stock is experiencing supernormal growth.
If the intrinsic value of a stock is greater than its market value, which of the following is a reasonable conclusion? O 1. The stock offers a high dividend payout ratio. 02 The market is overvaluing the stock. O 3. The stock has a low level of risk. O 4. The market is undervaluing the stock
Which of the following statements is CORRECT? a. If an investor buys enough stocks, he or she can, through diversification, eliminate all of the diversifiable risk inherent in owning stocks. Therefore, if a portfolio contained all publicly traded stocks, it would be essentially riskless. b. The required return on a firm's common stock is, in theory, determined solely by its market risk. If the market risk is known, and if that risk is expected to remain constant, then no other information is required to specify the firm's required return. c. Portfolio diversification reduces the variability of returns (as measured by the standard deviation) of each individual stock held in a portfolio. d. A security's beta measures its non-diversifiable, or market, risk relative to that of an average stock. e. A stock's beta is less relevant as a measure of risk to an investor with a well-diversified portfolio than to an investor who holds only that one stock.
7. Which of the following statements is FALSE? A) The market portfolio is the efficient portfolio. B) Many practitioners believe it is sensible to use the CAPM and the security market line as a practical means to estimate a stock's required return and therefore a firm's equity cost of capital. C) If we plot individual securities according to their expected return and beta, the CAPM implies that they should all fall along the CML. D) The difference between a stock's expected return and its required return according to the security market line is called the stock's alpha.
Which of the followings are required assumptions for the CAPM to hold? a Investors can borrow at the risk free rate b Investors are allowed to short any company c Investors have preference for high return and low volatility for their complete portfolio d stocks with negative correlation to the market doesn't exist
A reduction in the willingness of investors to take on risk would have what effect on the Security Market Line? A.no effect B.rotate the SML counter clockwise around the risk-free rate C.rotate the SML clockwise around the risk-free rate D.shift the SML upward, parallel to its previous location
(I) The market price of a security at a given time is the highest value any investor puts onthe security. (II) Superior information about a security increases its value by reducing its risk.a) (I) is true, (II) is false.b) (I) is false, (II) is true.c) Both are true.d) Both are false.
Which of the following statement is most accurate in analyzing a stock? If the security has a lower intrinsicvalue than that of the current price_________________a. The stock is good to buyb. Buy more stocks it will definitely go upc. Buy more stocks when price increasesd. The stock is not good to buye. None of the above.
What is Stock Beta and Describe a Stock with little risk and Stock with high risk? Define Beta and provide industries that fall into low risk and high risk categories.
Which of the following strategy would you adopt if you expect the fall in prices of a stock? A. Buy a call B. Sell a call C. Sell a put D. Buy a future
Higher interest rates imply higher required rates of return, which is generally a negative for stock prices a. True b. False
Changing the market risk premium A. Changes neither the y-intercept nor the slope of the security market line B. Changes only the y-intercept of the security market line C. Changes only the slope of the security market line D. Changes both the y-intercept and the slope of the security market line

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